16 September, 2020 / Analysis
Investment companies: Having your say
By Annabel Brodie-Smith, director of communications, AIC
Shareholders in investment companies have more options than to just vote with their feet, says the AIC's Annabel Brodie-Smith
The ‘G’ in ESG often has to fight for its share of attention. However, during the pandemic the governance and corporate behaviour of companies has been under intense, continued scrutiny.
In fact, it could argued it has never been more important for businesses to have good management conduct, accurate and transparent accounting, sustainable supply chains and thorough, effective risk and crisis management. All key components of sound governance.
Whilst technology, communication and analysis innovation and improvements have helped advance governance processes and implementation, these developments are only as useful as the people who harness them to positively inform corporate decisions. Investors also have a role as responsible stewards in companies they invest in, and the same goes for shareholders in investment companies.
When it comes to listening to investors’ voices, the listed public company structure of investment companies (or investment trusts as they are sometimes known) has key strengths versus open-ended fund equivalents.
Investors in investment companies have more options than just to vote with their feet – they can actually vote at investment companies’ annual general meetings (AGMs). By doing this, investors can have an impact on important decisions affecting their company, such as changes in investment strategy or dividend policy. Despite the pandemic many investment companies still managed to hold their AGMs safely.
The Renewables Infrastructure Group (TRIG), the second largest member of our Renewable Energy Infrastructure sector at £1.9bn of assets, hosted its AGM via telephone, with investors submitting questions and voting by proxy in advance. The 152-year-old F&C Investment Trust moved with the times by encouraging shareholders to vote electronically or by post in advance, and many investment company managers gave online presentations to keep shareholders informed.
We often see examples of investment managers actively engaging with the governance of portfolio companies, driving positive change as well as profits. So it can only be a good thing if shareholders of investment companies can also engage in this way with the investment companies themselves. To find out more about having your say as a shareholder of an investment company, you can see our brand new short animation here, or watch it below.
Shareholder voting is not the only governance trump card up investment companies’ sleeves. On top of this, the majority-independent board of directors adds another layer of governance and shareholder protection that open-ended funds do not have. Independent boards of directors are one of investment companies’ most important benefits.
They offer expert oversight, help set direction and strategy and have a legal responsibility to protect investors’ interests. Examples of ways in which they benefit shareholders include selecting or changing the company’s manager in a competitive process, negotiating fees with that manager and monitoring their performance against agreed benchmarks. The role of a board is a multi-faceted one, so an effective board will bring together individuals with various skills that complement those of their fellow directors.
The vital work of boards does not always make the headlines, but this year there have been several exceptions. In March, Edinburgh Investment Trust moved from Invesco to Majedie Asset Management after a period of poor performance. In July, the board of Witan Pacific announced their intention to award the investment company’s mandate to Baillie Gifford after they decided a change of geographical focus was needed. Conditional on shareholder approval, the new company will be called Baillie Gifford China Growth and will invest predominantly in Chinese companies. And in the same month, Perpetual Income and Growth Investment Trust announced a merger with Murray Income to create a £1bn UK Equity Income investment company, set to reduce ongoing charges for its shareholders.
Fee reductions have been a recurring theme of recent years and 21 investment companies have lowered their fees to benefit shareholders year-to-date.
Corporate governance has always been important, but the focus on ESG has thrown a welcome spotlight on the issue. The listed structure of investment companies accommodates the increasing number of investors wanting to have more of a say in how their money is run, while the independent board of directors adds extra governance muscle that other pooled investments do not have.
Part of the Bonhill Group.